Alternative legal services: A catch-22 for law firms

By Yves Faguy February 7, 20187 February 2018

Alternative legal services: A catch-22 for law firms

The recent Thomson Reuters 2017 Alternative Legal Service Study reports that alternative legal services providers (ALSPs) have grown into a $US 8.4 billion global industry:

The largest component of the market consists of independent LPOs and e-discovery and document review service providers, at $6.2 billion. The Big 4’s legal services units and contract lawyer and staffing services have another $900 million in revenue each. Captive LPOs and Managed Legal Services are smaller segments in terms of revenue.

By comparison, the total of all US law firm revenues is about $275 billion, and we estimate total global legal spending to be around $700 billion. ALSPs have clearly not swamped the incumbent players. But at $8.4 billion and growing, ALSPs represent one of the most dynamic segments of the legal services industry and they are likely to continue to play a role as competitors and disruptors for years to come.

The takeaway:

As the ALSP market evolves, the Big 4 are likely to play an ever-expanding role. Though not foreseeable in the near future, any changes in the US allowing for the adoption of alternative business structures, similar to those found in the UK or Australia, would position the Big 4 to take an even larger share of legal spend. Law firms worried about such competition, however, can take steps today to begin incorporating ALSPs into their service delivery model, as discussed in this report, to offer more cost-effective models, thereby blunting the potential impact of any such possible shift.

The report is careful to note that traditional law firms have themselves been busy getting into the business of delivering alternative legal service models (roughly half of those surveyed and 60 percent of corporate legal department), generally for standardized, high-volume tasks like document review.

Jordan Furlong has a thoughtful post up on what the future may hold for the growth prospects of ALSPs hoping – so do read the whole thing.  He also shares his thoughts on why the success of ALSPs complicates matters for traditional law firms:

Because the foundation of the traditional law firm is exactly all the routine, repeatable, hours-burning work that ALSPs are taking away. Law firms aren’t set up to perform only high-value, highly sophisticated work. Law firms are dependent on leveraging lower-cost labour — not just associates anymore, but also non-equity partners and even some junior equity partners — to carry out lower-value work. That’s the whole point of leverage. That’s where the partners’ profit is, and always has been. The sale of hours is the lifeblood of law firms — but the kind of work that could sustain 2,000 hours of lawyer effort every year is leaving the building. ALSPs aren’t just siphoning basic work from law firms; they’re siphoning off the lower levels of the law firm pyramid.

The problem is not that law firms are losing all the work they were overqualified to perform. The problem is that law firms are keeping all the work that requires highly skilled lawyers working in close collaboration using sophisticated tools on a multi-disciplinary platform to generate high-value outcomes for a previously agreed price. That, ironically, is the type of work that many law firms always say they aspired to do. But that sort of platform is not what most law firms are. And it is not what most law firms can easily transition to become.

 

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